what is the process in buying a home that is being foreclosed?

Asked by Erick Tuero, San Pedro, CA Fri Apr 2, 2010

I am already preapproved by my lender but not sure what the process is on foreclosures

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Andrea Kowalski’s answer
Andrea Kowal…, Agent, San Pedro, CA
Wed May 26, 2010
Hi Erick,
The process of purchasing property in foreclosure is essentially the same as any purchase except, depending upon what stage of "foreclosure" the property is in, you as the buyer must be exceptionally flexible in your expectations. The fact is, properties that are in distress will be sold subject to the lender/s approval of the sale and in most cases, the property will be sold without repairs or other material considerations for the buyer. In some cases, such as an auction, the buyer may actually buy him or herself a new bunch of problems such as undisclosed liens on the property or material problems with the property that may push the limits of what's commonly referred to as "deferred maintenance".

That said, not all "distressed" properties are in bad shape and a qualified, prepared and patient buyer with a savvy agent who is experienced in these matters can successfully and happily purchase a "distressed" home. There is often more than one issue with various "foreclosure" properties, but here are the main ideas in different scenarios:

Short-Sale: house needs be sold for less than the seller owes. Seller's lender needs to agree to accept reduced payment on the loan.

REO: bank owns the property, they've already lost money on it and they're not likely to put anything more into it

Auction: You need cash to buy and to rehab if you want to stay there or flip it. As mentioned, this is a game for sophisticated investors.

I agree with the other comments about not limiting yourself to "foreclosures" in your search, but do find an agent to work for you in you purchase. Look for a full-time agent with experience and up-to-the-minute knowledge of distressed property sales, state and federal rules, and programs and incentives that can benefit you.

Good luck!
Web Reference:  http://andreak.com
0 votes
Sharona Byrn…, Agent, Rolling Hills Estates, CA
Fri Apr 2, 2010
One additional comment to my previous answer. This answer is specifically for homes in California. Every state has different laws, and the foreclosure process can be very different. Be sure to refer to the laws in the state in which you are purchasing a home.

Sharona Byrnes
Prudential California Realty
0 votes
Sharona Byrn…, Agent, Rolling Hills Estates, CA
Fri Apr 2, 2010

One of the important distinctions to understand in the foreclosure market is the distinction between "pre-foreclosure/notice-of-default", "auction", and "bank-owned/REO".

When a home is in the foreclosure process, it is called "pre-foreclosure" or "notice-of-default". If the current owner of the home has chosen to try to sell the home instead of letting the foreclosure proceed, then they usually will have it listed for sale with a Real Estate Agent, or occasionally, For Sale By Owner. These are the "short sales" that we are hearing about so much in the news. As Tisza said in her answer, you need a Real Estate Agent who is experienced in sheperding these types of transactions through, as they are complicated, messy, frustrating, and slow.

The next stage for a home is "auction". This is where the home has been foreclosed on by the trustee and is being auctioned at a trustee's sale. At an auction, the only way to purchase a property is with cash (unless you are the bank that holds the loan). The auction is really only for very experienced, sophisticated investors who specialize in purchasing homes at auction.

After the auction, either an investor owns the home or the bank owns the home. If an investor owns it and decides to sell it, it will be listed for sale as a standard real estate transaction. If the bank owns the home, it will be listed for sale as an REO or bank-owned property. Again as was already answered, REO sales have specific needs and guidelines and a buyer needs an agent who has the knowledge and experience on their team to watch for various bank practices and ensure that the buyer is protected.

In my experience, the best thing when looking for a home is to find one you like, regardless of its ownership status. Then, once you find the home, everything else will follow.

Good luck!!

Sharona Byrnes
Prudential California Realty
0 votes
Tisza Major-…, Agent, Upland, CA
Fri Apr 2, 2010
Hi Erick,

Well, you already have one huge piece of the puzzle in place - your funding. The next step is to find a good agent (I recommend looking for a Realtor not just a Real Estate Agent because all licensed real estate sales people are Real Estate Agents but not all are Realtors. A Realtor is held to a higher standard of conduct and has more resources at their disposal to assist you in your search).

Incidentally, when shopping for your agent (and you should indeed shop for them, just like a good suit they need to "fit" or else you will be uncomfortable whenever you have them around :-) look for someone who has successfully helped other folks buy homes in distress as they should be better versed in what the lender who is now the seller of the home which has completed foreclosure will be looking at and looking for.

If you are looking at homes in Pre-Foreclosure (Short Sales or homes where an NOD which stands for Notice of Default which means they are behind in their payments) you need someone who is additionally experienced in handling those types of transactions so that they can not only guide you but also sometimes help guide the listing agent if they lack the experience and know how where these sales are concerned, to a successful end.

Basically it will work like this: You find an agent who you "click" with and who has the necessary skills and experience. They in turn, discuss your wants, needs and desires for your new home and then go out and help you look at prospects. Basically they work like a personal shopper narrowing the field so that only the gems that match you desires shine through.

After you have settled on the homes you wish to see in person and you find the one that you like, the agent will contact the listing agent to get any additional information you will need to make your final decision about placing an offer. This can include any additional disclosures that the listing side will request or reviewing with you any addendums that will be added to the contract (and BOY do most lenders love, Love, LOVE addendums :-). If you are agreeable to whatever conditions will be placed upon you by the seller, then you write the offer and your agent presents it to the seller's agent.

Then you wait... if you are looking to purchase a home that is already been foreclosed upon and is now bank owned then the wait can be more in line with that of a standard sale, 1 to 4 days for a response to your offer. If the home is being sold via Short Sale then the wait can be much longer, one month is pretty standard minimum.

If your offer is countered then you need to decide if you want to agree to the new terms being proposed and if you do you sign and they sign and off to escrow you go! If your offer is accepted then off to escrow you go! If your offer is rejected or ignored (both of which happen frequently especially for very desirable homes) then you either decide to write an better, stronger offer improving the terms you are offering or you decide to move on to the next property and off you go :-)

After you enter escrow, essentially what occurs is that you show them things, they show you things, you review the things they give you and they review the things you give them then when everyone is happy and your lender funds your loan, they get paid and you get your keys. That was the quick and dirty version by the way.

Generally speaking, once you head into escrow most transactions proceed in a similar fashion meaning that you and only you will be in escrow to purchase that property and as long as you do all you say you will and your lender does what they say they will, when they say they will do it, it ends in a closed sale.

The big exception to this is the bank owned home. Banks sometimes ask for and as a condition of sale have multiple offers accepted and may even insist that they be allowed to cancel and go with a different offer right up until the day you are due to close if it pleases them. This is a really good reason to have an agent who gets along well with others since likability between the representatives is helpful.

I hope that helped. If you have any additional questions or need any additional info. Please do not hesitate to ask.

Take care and have a wonderful day!

Tisza Major-Posner, Realtor, * SFR, ** RREOBS, DRE#01784679, IVPG Realty (909) 837-8922 or (213) 392-4084
* National Association of Realtors Certified Short Sale and Foreclosure Resource Specialist
** California Association of Realtors Certified Residential REO Buyer Specialist
Web Reference:  http://Route66Living.com
0 votes
Anna M Brocco, Agent, Williston Park, NY
Fri Apr 2, 2010
When buying foreclosures it is highly advisable to have an agent looking out in your best interest--contact a few realty office(s), interview a couple of agents and choose the one you like best--he/she will be your best guide--keep in mind that not all foreclosures are such great bargains, therefore don't rule out any traditional sales as some may be better buys.
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